explorative study of real estate

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SOCIO ECONOMIC ENVIRONMENT OF REAL ESTATE

ITS HISTORY AND IMPLICATION IN STRATEGIC

PLANNING

Since Beginning till July 2008

Prepared Under the Supervision of

Er.A.K.Srivastava


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Table of Contents

1. Introduction & Objective of study2. Literature Review.

2.1) History of real estate in India: Economic TimesIntelligence group report (Covering Period up toMarch 2006).

2.2) Maturing real estate from the eyes of Ernst &Young annual report (Covering Period between April2006 to March 2007)

2.3) Ernst & Young Quarterly reports onReal Estate: .

1) June 2007 2) September 20073) December 20074) March 2008..

2.4) Overview of Economic Environment of Indian RealEstate (from the eyes of various news paper)............

2.5) Indian Monetary policies & its impact onReal Estate...

2.6) Contribution of Indian Real Estate in IndianEconomy.

2.7) Impact of American recession on Indian RealEstate..

2.8) China verses India..

2.9) Supply of Land..

2.10) Infrastructure problem and its impact.

2.11)Raising Fund other than I.P.O. & ForeignInvestment..

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2.12) Climatic concerns & Carbon credit.

3. Recent developments in Real Estate (April 2008 to 20th July)...

4. Statistical facts and Regulatory regime..

5. Observations on developments I Real Estate.

6. Trends & Patterns Observed

6.1. Real Estate sector becoming more organized and transparent..

6.2. Global environment has major impact on Indian realestate

6.3. Real Estate market and stock market are correlated butrise or decline is steeper in case of Real Estate

6.4. Investors & speculators support real estate companiesduring upturn but work against during down turn...

6.5. There is shift expected in preference of customer towardsluxurious living, high quality branded product, studioapartment or make shift accommodation.........................

6.6. Established Real Estate companies diversifying in unrelatedareas while companies from other sectors are entering intoreal estate.. ...

6.7. Redevelopment of slums: New Trend: Dharavi leads the way..

6.8. Growing tie up with facilitatorslike educational Schoolchain, Hospital chain, Hotel chain by Realtors, Foray IntoRelated Areas

6.9. Reversal of Trend in IPO Market

6.10. Affordable Housing

7. PESTEL Analysis ...

8. Swot Analysis...

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9. Formulation of Strategy

10. Validation of studies through expert interview..

11. Conclusion..

12. ANNEXURES

1. Special Residential Zones Strategy by CREDAI2. Business plan for Special Residential Corridors

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1. INTRODUCTION

We as human being has variety of needs. Perhaps the most basic needs are food, shelterand clothing but we all have limited income to allocate to first fulfill the primary needs

and then other needs. This require social and economic considerations. Economicsprimarily deals with allocation of limit resources to fulfill our unlimited wants.

A Business Firm also operates in an open environment where it is affected by forces ofglobalisation. Domestic economic factors also affect their business. The primary motiveof a business firm is to earn profit but to earn this a firm has to decide what to produce,how to produce and for whom to produce. This all requires environmental scanning sothat limited resources of the Firm can be applied to produce a product which is desired bysociety and which help firms to earn ample profit not only for its survival but also for itsgrowth.

Till Recently Real Estate Industry was part of Construction Industry in India. It wassomewhere in Year 2000 that the growing need for a new sectorial industry was realizedand people start recognizing a new sector industry as Real Estate Industry. Formalindustry status has till now not been awarded to it. This sector is some what different innature and requires a different type of Professionalization. So far civil contractors, builders and established construction companies has taken a lead and developedthemselves as Real Estate Industry but its peculiar nature, high risk taking capacity andinteraction with government customers coupled with complications from technology and pressure from globalization require development of highly specialized professionalculture for this Industry which is yet to be achieved. Scarcity of land, proximity to workcenter and growing need to security between new developing nucleus families has put

forward a culture bounded by multi storied residential colonies against single or doublestoried houses, development of Mall culture requiring a totally different shopping culture,IT and ITES Industry requiring round the clock working World Class office spaces,booming retail and hospitality Industry require world class retail and recreation space, allthese has put great pressure on Real Estate Industry to quickly professionalize itself.

Growing Economy of the country, rising per Capita Income, increasing Influx of ForeignCapital, impact of globalization and continuous Economic Reforms in India has to bedeeply studied so that proper forecasting for the Real Estate Sector can be done andstrategic decision could be taken.

Real Estate Sector as a whole contributes about 7% to GDP, employs around 32 million people directly or indirectly and accounts for about 40% of gross investment.Sustainability of growth of Indian economy and employment of mass scale ruralpopulation, which does not posses adequate skill, is a great challenge before this sector.This all needs deeper professional study for future strategic decisions.

Real Estate firms were basically disorganised in India. The liberlisation of Indianeconomy started in nineties but the real estate firms started taking shape only after 2002


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and got a boost when Foreign Direct Investment was permitted for them. Now they became more transparent and organised when they got themselves listed in stockexchange and started operating in a big way in collaboration with foreign players.

Till now there was no profession or professional branch which could have studied its

evolution, organisation and growth in a systematic manner, not only to make theirorganisation more effective but to make them able to face the fierce competition. It is firsttime in India that Indraprastha University in collaboration with School Of PlanningAnd Architecture has introduced a professional MBA course in real estate and I amfortunate enough to be a student of first of its batch, so it becomes obvious to study thereal estate industry in an organised manner so as to make future firms take their decisionin a professional manner. Hence, need of this study evolved and become a matter ofprime importance.

Real estate industries in India are in business of Space Selling. The space may becommercial one, may be industrial, may be recreational or may be residential. So far

these firms are family owned but now after their listing their size grow bigger and biggerand professional skill is very much required to manage them. In growing Indian economywhich is now integrated with world economy, Indian real estate firms faces newchallenges of what to produce, how to produce and for whom to produce. This social andeconomic understanding will be the outcome of this study.

This study will provide a deep understanding of interplay between various market forceswhich have an impact on industry, will identify prominent trends and also device suitablestrategy along with a workable business plan as an end result.


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Objective of the study

The objective of this study is to do environmental scanning from the point of view of

understanding different macro economic parameters, which affects the real estatebusiness, so that a viable business strategy can be formulated.

Sub Objective

1) To Study economic environment of country and find out its impact on Real Estate.2) To Study the pattern of development of sector.3) To formulate suitable strategy for future housing.4) To Develop Suitable Business Plan to implement the Strategy.


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Methodology

The methodology used in this project is:

1. Explorative Research

2. Interview

1) Explorative Research:

In depth analysis of following documents has been carried out to understand the historyof real estate in India, past trends and social and economic development leading topresent status.

a) Economic Times survey on Real Estate published by ET intelligent Group in2006,covering major real estate development in India up to march 2006.

b) Ernst & Young, International consultant on Real Estate annual report on Indian

Real Estate: Growth and new Destination released in the month of August2007, covering growth of real estate from April 2006 to March 2007.

c) Ernst & Young, International consultant on Real Estate Quarterly report on RealEstate from April 2007 to March 2008.

d) Real Estate Observer, Reality Plus magazine of year 2007 to July 2008.e) Important New papers of India like: Times of India, Economic Times, Hindustan

Times, Financial express and business Standards report on real estate from August2006 to June 2008.

2) Case Study:

A National Seminar was organized by NAREDCO on April 21st

2008.The GOI cameout with figures of demand on Affordable Housing and appealed Real estateDevelopers to participate in massive demand of Affordable Housing.

A strategy of Special Residential Corridors was conceived and presented in theseminar.

The formulation of this strategy will be studied in the background of Strategy ofSpecial residential Zones to understand its viability.

A Business plan and suitable plan of action will be designed to implement this

strategy.


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2. LITERATURE REVIEW

2.1) History of Real Estate in India as evident from Economic Times

Intelligence Group Report

Following observations emerged out of study of publish literature

The right to life is guaranteed in any civilised society. That would take within itssweep the right to food, the right to clothing, the right to decent environment anda reasonable accommodation to live in. The difference between the need of an

animal and a human being for shelter has to be kept in view. For the animal, it isthe bare protection of body. For a human being, it has to be a suitableaccommodation which would allow him to grow in every aspect physical, mentaland intellectual. (Observation of the Honble Supreme Court in M/s ShantistarBuilders Vs Narayan Khimalal Totame AIR 1990 SC 630)

(Source: - ET Intelligence Group)

Shelter a basic human needArticle 21 of our constitution guarantees right to life or personal liberty to everyperson. Several un-enumerated rights fall in these rights as the expression right

to life of personal liberty has the widest amplitude. As right to shelter is a must toenjoy a meaningful right to life guaranteed by the constitution, it also falls withinArticle 21.

(Source: - ETIntelligence Group)

Defined by the WHO in 1961, housing is the residential environment,neighbourhood, micro district or the physical structure that mankind used forshelter and the environs of that structure including all necessary services,facilities, equipment and devices needed for the physical health and social well-being of the family and the individual.


Housing shortage is attributed mainly to:

(a)growth of population(b)disintegration of the joint family system(c)new household formation due to economic independence(d)low level of income of families

TIMES

MULTIMEDIA Real Estate Construction ETIntelligenceGroup

THE ECONOMICS TIMES


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(e) inadequate availability of funds for housing, particularly in case of people inthe unorganised sector

(f) shortage of developed land in for housing(g)high prices of developed land in urban and semi-urban areas(h)migration of population from rural to urban areas in search of employment,

and(i) the legal impediments


Housing Legal Reforms

Specific action areas in the category of legal and regulatory reforms included inthe policy are:

(a) amendment of Land Acquisition Act or enactment of a new law foracquisition of land for the urban areas

(b) repeal of Urban Land Ceiling Act to correct the distortions in the land market(c) amendments in the rent control legislations to stimulate investment in rentalhousing

(d) Amendment of town planning laws and land-use regulations to providestatutory support for land assembly, land pooling and sharing arrangements.

(e) new legislation to regulate the activities of promoters/builders(f) Simplification in the procedure of sanction of building plans(g) conferment of homestead rights in rural areas on the landless and others(h) introduction of speedy foreclosure procedures in case of defaults(i) introduction of mortgage insurance by amending the act relating to insurance

sector(j) Amendment in the co-operative laws including enactment of separate act for

housing cooperatives to encourage them to take up more housing projects(k) reduction in the stamp duty on residential properties as also on asset

securitisation(l) simplification of registration procedure in the conveyance of immovable

properties(m)updating and modernisation of land records and introduction of Torren

System for land records and little investigation(n) enactment of apartment ownership legislations by the states(o) amendment of municipal laws/building bye-laws and planning regulations for

urban renewal and slum improvements(Source: - ET

Intelligence Group)

Global Real Estate The earth is not enough

With the worlds largest population, China is now emerging as a major market forresidential property. The US is the biggest market for real estate.

Key Points


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the size of the global real estate industry was estimated to be $332 billion(2003), according to Data monitor. The residential market accounted for 56% ofthis

The US is the single largest market for real estate, accounting for about one-

third of the global market The US market is witnessing a consolidation the share of the five largestplayers has increased from 4% to 14% since 1991.

The US market is being driven by a large number of people investing in realestate.

China is an increasingly important real estate market with an estimated urbandemand of 540 million square metres per annum over the next five years.

Growth drivers of the Chinese market are increasing urban population andsmaller family size


China

With the worlds largest population, China is now emerging as a major market forresidential property as well. Property in China is sold by the square metre. In2004, a total of 382 million sq m of residential property was sold in China, up 44million sq m from 2004. The average price of housing in China increased by14.4% in 2004, and 2005 seems likely to witness a repeat. In May 2005, theChinese Government took several measures to prick the housing bubble.

The most important of these measures were :

Home buyers who sell a property within two years of purchase will pay a tax onthe sale price.

Buyers of unfinished properties will be banned from reselling these propertiesuntil they are completed

Land idle for over a year will attract a tax

Some cities, such as Shanghai are also taking steps to curb speculation in property. The city government required home owners to settle any outstandingmortgages before they can sell the property. Chinas central bank tightenedmortgage loan regulations in March by basing mortgage lending rates on regular

lending rates, essentially raising the cost of borrowing for property loans.

According to research findings taken from the Chinese industry, the urbanpopulation of the country is expected to increase from 537 million in 2005 to 660million in 2010. At the same time, the average household size in the urban areas isprojected to fall.


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The three major demand drivers for residential property in urban China areexpected to be the rising population, smaller family size and ageing of population.From 2005 to 010, these three factors are expected to drop o 453 million sq m perannum for the period from 2010 to 2015.

According to Datamonitor a research group, the size of the Chinese real estatemanagement and development market was estimated to $8.2 billion in 2002. It isexpected to cross $12 billion by 2007 a growth of almost 50% in five years.Commercial business accounts for about 57% of the Chinese market.

The traditional pattern of life in China is now undergoing a change. Earlier, thestate used to provide housing for city dwellers at very low or nominal rates.Young people typically lived with their parents till they married and marriageswere often delayed till the couple could get a house from the local agency.


Real Estate Construction Residential

Keys Trends

Housing shortage of 19.4 million units, 12.7 million in rural areas and 6.7million in urban areas

Increasing urbanization 27.8% as per 2001 census

Increase in home loan disbursements at a CAGR of 30%

Size of home loan market was Rs 54,000 crore in FY04. Total market size couldbe twice that figure

Age profile of home buyers is decreasingHigher loan to cost ration

Residential property coming up as investment option

Trend towards township projects

Premium and super-premium housing is growing

Ownership of houses is increasing

Quality of housing is improving


At the beginning of the 21st century, a little over 10% of Indias population lived

in urban areas. By 1931, the share of urban population had increased to 12% ofthe total population. The real growth in urban areas started after independence. Asone would expect, with development, urban population has been increasingrapidly and the share of urban population has increased from 23.3% in the 1981census of 25.7% in the 1991 census to 27.8% in the 2001 census. At this rate, wecan expect the urban population to top 30% of total population by 2010.


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The levels of urbanization are the highest in the union territories and some smallerstates like Goa (50%) and Mizoram (50%). Among the bigger states, urbanizationlevels are high in Maharashtra (42.4%), Gujarat (37.4%), Karnataka (34%) andTamil Nadu (43.9%). The decadal growth rate in urban housing over the past fourdecades was highest during 1971-81 at 51.4%.


Some of the trends visible from looking at these macro number are:

There has been a slowdown in the growth of Indias financial capital, the city ofMumbai

This could be because Mumbai used to be the centre for textile, chemical andengineering industries many of which have now shut down or moved elsewhere.

Job creation in the new sectors such as IT and BPO is greater in other cities like

Bangalore, Pune, Delhi and Chennai.

Pune has the second highest growth rate amongst the eight top cities over the1991-01decade. Pune is one of the major centres of Indias IT industry but thehigh growth in Pune is only partly attributable to growth from IT and BPOindustries.

Despite earning notoriety as the city of plague, Surats growth rate of 85% isby far the highest amongst all the major cities. This is attributable to employmentis gems & jewellery, textiles and agriculture related industries.

The NCR area has been job creation in the BPO sector, As per ETIG estimates,about 50% of Indias current 270,000 jobs in the BPO industry are based in theNCR region.

Some of the leading Indian BPO companies such as EXL Services and Wiprospectramind are based in the NCR region. The software sector is not as big, butDelhi can still boast of some big names such as HCL. There has also been growthdue to the service sector retail, multiplexes and mall.

Apart from the IT sector, Delhi is also one o the major centre for the autoindustry. Major players in the Indian auto sector including Maruti, Hero Honda,

Eicher, Swarj Mazda and Yamaha are based in Delhi-Gurgoan.

Bangalores growth is attributed primarily of the software industry. The city isalso home to some of the biggest names in the software sector such as Wipro,Infosys and Polaris.

In the recent past however, there have been some concerns whether Bangalorehas the infrastructure to support further growth of the software industry.


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Hyderabad has attracted a lot of attention from the software industry over the past few years. Apart from campuses of the leading software companies,Hyderabad also boasts of some home-grown firms such as Satyam.

Chennai has also seen a growth in IT related jobs over the past few years.Growth in the BPO sector is not as impressive. However, apart from the ITindustry, Chennai is also a major centre for the auto-industry.


Large Developers Hands OnThere are only a handful of listed companies in the Indian real estate market. TheDLF Group, Hiranandani Group, Lok Housing and Constructions, and AnsalProperties Industries are some of the well-known developers.

The Indian real estate market is unorganized. There are no large players with anational presence. Each city is an independent market which is split amongstdozens of builders/developers. For instance, in the city of Mumbai, no single builder controls more than 5% of the total market. Moreover, most of thecompanies operating in this sector are privately held. In contrast, China hadaround 70 listed real estate companies by the end of 2003. The estimated totalmarket cap of these entities was in the range of $18 billion. There are a handful oflisted companies in the Indian real estate market. Some companies such asKalpataru, Mahindra Gesco, Unitech and Era Constructions specialize in realestate development. There are othersparticularly the Hyderabad-based NagarjunaConstructions and IVRCL Infrastructures. These companies specialize in

infrastructure projects but they also take up large scale housing projects from timeto time. However, their role is just construction, and not development. Larsen &Toubro, Indias largest engineering company also constructs building, but only asturnkey projects and not as developer. One of the construction majors HindustanConstruction Company has moved into real estate sector as a developer. Thecompany has a 50% stake in a large township project that is being developed at alocation between Mumbai and Pune. This is a mega project spread over 10,000acres and is to be completed in three phases. However, this remains an exception.


Commercial Market : Room with a view

The software and BPO (business process outsourcing) industries are taking upover two-thirds of new office space that is being built. As estimated 8-10 millionsq. ft. of commercial space is added annually for the IT/BPO industry. Most ofthis is in metros and Class I cities. The other major driver for commercial real


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estate is organized retail. The construction boom in India has prompted severalplayers to launch real estate funds

Key Trends

IT/BPO and retail sectors to be drivers of the drivers of the commercial propertymarket former in office space and latter in commercial space

IT/BPO industry generated a demand of 8-10 million sq. ft. per annum

This could increase to 18-20 million sq. ft. per annum in 2-3 years time

Bangalore, Chennai, Hyderabad and Pune account for the bulk of the IT industry

Delhi accounts for a big chunk of the BPO industry

Smaller cities such as Jaipur, Kochi, Indore and Bhuvaneshwar are coming up asdestinations for IT/BPO industry

Organised retail is growing at a rapid pace and the same is evident from thegrowth of retail chains and the number of malls coming up

The current space taken up by organised retail is about 6.5 million sq. ft. with

another 40 million sq. ft. under constructionRetailing is moving to Tier-2 cities which could contribute 20-25% of the retailspace added


FDI is Real Estate : Opportunity Knocks

With 100% FDI (foreign direct investment) in real estate now being allowed,overseas developers are looking at the real estate market. According to the new

FDI policy, up to 100% will be allowed under automatic route in townships,housing, built-up infrastructure and construction-development projects. Banks andfinancial institutions have also begun to invest in funds floated by venture capitalfirms

Key Trends

100% FDI permitted in real estate sector

Minimum project size reduced to 25 acres from 100 acres for township projects

Minimum project size is 50,000 sq metres for commercial construction

Investment subject to minimum capitalization of $10 million for subsidiary

companies and$5 million for joint ventures

FDI in retail could touch Rs 4,000 crore

Investment limited by availability of Grade-A tenanted buildings

Indian banks and financial institutions are also setting up VC funds for realestate


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FDI in Real Estate

The government cleared 100% FDI (foreign direct investment) in the constructionsector under the automatic route in February 2005. Though foreign investmentwas allowed in the sector earlier as well, too many restrictions were preventing

the flow of FDI. In order to prevent foreign investors from speculating in the realestate market, sale of undeveloped land has been prohibited. Minimum land areato be developed under each project will be 10 hectares in the case of servicedhousing plots, and 50, sq mt in the case of construction-development projects. Inthe case of combined projects, any one of the above two conditions will suffice.

The investment will be subject to a minimum capitalization of $10m for wholly-owned subsidiaries and $5m for joint ventures with Indian partners. The fund willhave to be brought in within six months of commencement of business of thecompany. Original investment cannot be repatriated before a period of three yearsfrom completion of minimum capitalisation. But the investor may be permitted to

exit earlier with prior approval of the government through the FIPB.

The investor will not be permitted to sell undeveloped plots. Undevelopedplots mean areas where roads, water supply, street lighting, drainage, sewerage,etc. have not been made available. The investor will have to provide thisinfrastructure and obtain completion certificate from the concerned local body/service agency before he is allowed to dispose of the plots. Projects chosen forinvestment by foreign companies shall conform to the norms, including land userequirements and provision of community amenities and common facilities, aslaid down in the building control regulations, and bye-laws and rules of stategovernment, municipal bodies or local authorities. In terms of treatment, FDI

projects will be accorded national treatment on par with those of local developers.


Real Estate Construction Industry An Overview

That the cities can be dubbed as engines of growth is historically acknowledgedin most nations of the world. The real estate construction business plays a key rolein the development of cities. At a macro level, increases in urban population andrising incomes have meant that the housing business has boomed. On the housingand residential front, the growing middle class (with its increasing purchasingpower and growing number of nuclear families) and a softer interest rate regimehave meant that the investment in this sector has grown at a rate of over 18% onan average during the last couple of years. Increasing employment opportunitiesin urban areas particularly in the information technology (IT) and back officeprocessing (BPO) industries, has increased the demand for real estate. Finally, anincrease in income also means higher purchasing power and increasedconsumption, which results in developments of commercial property such asmalls etc.



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Indias Urban Scenario

As per the data of Ministry of Urban Development, the total number of towns andcities in India is 4,378. There are a total of 35 cities with a population exceeding 1million. The increase in urban population has been higher than he overall growth

rates urban areas accounted for 23.3% of the total population in 1981, whichhad gone up to 25.7% in 1991. As per the 2001 census, this had increased to27.8%. In absolute terms, the urban population increased from 159.5 million in1981 to 285 million in 2001.

A rapid rise in population translates into higher demand of dwelling units forresidential purposes. The government alone cannot meet this demand for housing. As per the 1991 census estimates, there was a shortage of 8.2 million dwellingunits in the urban areas, which had come down to 7.1 million in 2001. In recenttimes, the focus of the government has been on creating strong public-privatepartnerships for tackling the housing and habitat issues.


Trends in the Housing Sector

Reliable estimates are not available on the overall size of the housing sector.However, there is data available on the number of dwelling units and the type ofconstruction. As per the census data, the total occupied housing stock in Indiaadded up to 187.1 million in 2001. Cities accounted for 52 million about 27.8%of the total, up from 38.7 million in 1991. In the urban areas, a little above 79.2%of the houses were pucca structures. Census data reveal that there is clear trendtowards increased ownership of homes. In 1961, about 54% of households in theurban areas lived in rented accommodation. This figure has been falling steadilyand as per the 2001 census, this was down to 28.5%.

Another clear trend is the increasing number of pucca houses. In 1961, only 45%of the houses were pucca structures. The figure increased to 63.8% by 1971 and to79.2% by 2001.

Another interesting trend visible from the census data is the fact that with time,there is a shift towards larger dwellings. For instance, in 1971, 50% of all urbanhouseholds occupied one room. This number fell to 45.8% in 1981 and was downto 35.1% in 2001. A similar trend was observed in the percentage of familiesoccupying two rooms. On the other hand, there has been an increase in thenumber of families occupying three, four or more rooms.

Since 67% of all urban households still occupy two or fewer rooms, there isplenty of scope for growth as they upgrade to larger dwellings.



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Government Initiatives Housing in the Five-Year Plans

The policies of urban development and housing in India have come a long waysince five year planning has been initiated in the country. The pressure of urban

population and lack of housing has been evident since the 1950s. We look at howthe housing policy in the country has evolved over the years.

The First-Year Plan (1951-56) Emphasis was given on building differentinstitutions and construction of houses for Government employees and weakersections. The Ministry of Works & Housing was constituted and NationalBuilding Organisation and Town & Country Planning Organisation were set up.Sizeable part of the plan outlay was spent for rehabilitation of refugees fromPakistan and building the new city of Chandigarh. An industrial Housing Schemewas also initiated.

The Second Five-Year Plan (1956-61) The Industrial Housing Scheme wasextended to cover all workers. Rural Housing, Slum Clearance and SweepersHousing Schemes introduced. Town & Country Planning Legislations enacted inmany states and organisations were set up to prepare Master Plans for importanttowns.

The Third Five-Year Plan (1961-66) A Scheme was introduced was extended1959 to give loans to State Governments for a period of 10 years for acquisitionand development of land to make available building sites in sufficient numbers.Master Plans for the State capitals of Gandhi Nagar and Bhuvaneswar weredeveloped

The Fourth Five-Year Plan (1969-74) The Plan stressed the need for dispersal of population from larger cities. The creation of smaller towns and planning thespatial location of economic activity was seen as the means for this. Housing &Urban Development Corporation (HUDCO) was establishment to fund housingand urban development programmes.

The Fifth Five-Year Plan (1974-79) A Task Force was set up for developmentof small and medium towns. The Urban Land (Ceiling &Regulation) Act wasenacted to prevent concentration of land holdings in urban areas such that land isavailable in urban areas for constrution of houses for the middle and low incomegroups.

The Sixth Five-Year Plan (1980-85) The Integrated Development of Small andMedium Towns (IDSMT) was launched in towns with population below one lakhfor provision of roads, pavements, minor civic works, bus stands, markets,shopping complex etc. Positive incentives were proposed for setting up newindustries and commercial and professional establishments in small, medium andintermediate towns.


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The Seventh Five-Year Plan (1985-90) The National Housing Bank was set upto expand the base of housing finance. NBO was reconstituted and a neworganisation called Building Material Technology Promotion Council (BMTPC)was set up for promoting commercial production of innovative building materials.

The National Housing Policy (NHP) was announced in 1988. The NationalCommission of Urbanisation submitted its report.

The Eighth Five-Year Plan (1992-97) The role and importance of the urbansector for the national economy was recognized. Thus, the urban areas were to beenabled to absorb larger increments to the labour force. Key issues in theemerging urban scenario were identified including the supply of infrastructureservices, proliferation of slums and urban employment. The Nehru Rojgar Yojana(NRY) was launched.

The Ninth Five-Year Plan (1997-2002) It was estimated that Rs 250, 000 crore

shall be required for urban infrastructure but now more than 10% would beavailable from government sources.

The Tenth Five-Year Plan (2002-2007) The Tenth Five Year Plan estimated theurban housing shortage at 8.89 million dwelling units in 2002. The total numberof houses that would be required cumulatively during the Tenth Plan period wasestimated at 22.44 million dwelling units. The investment requirement from public sector institutions was estimated at around Rs 415, 000 crore. Thecompulsion to access financial resources from the market and induce the privatesector to participate in housing programs was recognized. The government withan annual allocation of Rs 500 crore has also approved the Urban ReformsIncentive Fund.


The National Housing and Habitat Policy 1998

The development of satisfactory housing is always the priority in both policyformulation and its implementation. The major obstacle facing public initiativefor housing is the uncontrolled population explosion, especially in the urbanareas. Hence, the constant migration of people from rural areas to cities in searchof jobs puts housing and basic services in the urban areas under much pressure.

By 1997 India had an estimated housing shortage 13.66 million units, out ofwhich 7.57 million units were in the urban areas. More than 90% of this shortagewas in the low income category. An investment of Rs 151,000 crore (about $34billion) was estimated as the requirement to bridge this deficit. It was realized thatno significant headway can be achieved without massive participation of theprivate sector. This called for legal, regulatory reforms and fiscal concessions toencourage non-government sector to take up land and focus on investment and


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construction real estate. In short, it envisaged the changing role of the governmentfrom a regulator to a facilitator.

The National Housing Policy of 1998 was formulated to ensure sustainabledevelopment of infrastructure and for fostering private-public partnerships for the

purposes of housing. Through the policy, the government declared HOUSINGFOR ALL as a priority and set a target of construction of two million housesevery year, of which 0.7 million are to be constructed in the urban areas.

Since housing is a state subject, the primary responsibilities of fulfillments ofthe physical targets are with the respective state governments.



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2.2) Maturing Real Estate from the eyes of Ernst & Young annual

report

Characterized by massive scale of development, significant price appreciation across

asset classes and geographies, rising occupancies and sustained end user demand, freecross border flow of real estate capital ,entry of large international player ,billions ofdollar raised through IPOs and several dynamics policies and regulatory interventions,the Indian real estate sector has witnessed frantic activity throughout the last year.

Increase spending trend by Indians and rising tourist flow into the countryfuelled the demand for retail and hospitality space.

To cool off the substantial price appreciation and ensure sustainable liquidityin the sector, the RBI, the apex bank of the country, increased interest rates aswell as risk weightages for loans to real estate and restricted real estatecompanies from borrowing debt in international markets.

A) SCALING NEW HEIGHTS: Sectoral snap shots

Driven by broad based economic growth, Indian real estate sector haswitnessed phenomenal growth across all asset classes-commercial, retail,residential, industries and hospitality. Real estate continues to be chosenInvestment Avenue as the yields are visibly higher than other investmentoptions. it can further be attribute that yields from investment in Indian realestate are among the highest in the world.

The commercial real estate segment witnessed a dominance of IT/ITeS accounting nearly 70-75% for total commercial office space absorptionfollowed by Banking, Financial Services and Insurance (BFSI),Pharmaceutical and telecom in most cities.

Rental and capital values of the grade A commercial space witnessed steadyappreciation in most parts of the country; highest appreciation for the mostcities was witnessed in last quarter of 2006


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14%

10%

8%

11%

26%

8%

23%

Mumbai

Pune

Kolkata

Chennai

Banglore

Hydrabad

NCR

Commercial office Space Total Absorption 45.5 million sq. ft (2006)

Secondary Business districts (SBDs) benefited from limited supply in CBDs andwitnessed high appreciation in rental and capital values.

Favorable policy change in the form of reduced minimum area requirements forFDI compliant township projects, coupled with robust demand from both endusers and investors, resulted in explosive growth of residential segment in the pastyear. Hence strong demands ensure healthy price appreciation.

It is believed that the hardening interest rates in 2006 due to tightening of lending

norms by the RBI and hike in provisioning requirements for banks on home loans(for home loan above 20 lacs)had some dampening impact on the housingdemand, through overall absorption remained healthy.

With the home buyer profile getting younger, there was a visible shift in the product format and integrated development emerged popular with discerningcustomers.

Residential developments remained concentrated in the peripheral regions ofmajor metropolitan cities. Which can be attribute to availability of land andproximity to upcoming knowledge industries. Regional developers dominated the

supply in the residential markets and offeredproducts in premium as well as midsegment category.

Commercial retail:

90% of commercial retail supply was primarily concentrated in the top sevenmetropolitan cities as shown in the chart.


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NCR witnessed highest absorption of organized retail mall space (8.2 mnsq. ft.) followed by Mumbai (4.1 mn sq. ft) Hence we conclude thatInvestment yields from commercial retail space in top Indian citiesremained amongst the highest in the world.

Bangalore emerged as a leader in terms occupancy rate. This could be

attributed to economic growth led by the IT industry in the city. Low vacancies in all hotel categories, serviced apartment concept received

a major boost.

There were also some significant joint venture and strategic alliancebetween leading developers and global hospitality management groups.

SEZ and Industrial Parks:

Large numbers of prominent SEZ approvals were granted by the Government ofIndia. Almost 90% of the SEZs approved were sector specific. The maximumnumber of approvals are bagged by Maharashtra(75), Andhra Pradesh(61), Tamil

Nadu(53) & Karnataka(36).Now government has withdrawn the freeze on newapprovals however, at the same time has tightened rules by capping the land sizeto a maximum of 5,000 hectares.

Apart from SEZ developers, contractors appointed by an SEZ unit to be accordedexemption on construction material purchase.

4% 5% 2%5%

4%

11%

69%

Pharmaceuticals

Biotechnology

Gem & jew ellary

Engineering

Textile

Others

IT/TES/Electonics/Electronics

hardw are

B) REGULATORY AND POLICY BUZZ

Industry regulator shaping up:

The initiative by the Government of India on the regulatory front was the preparation ofthe draft Real estate management (regulation & control) Bill. The initiative expected to


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fill in the long standing gap of absence of any regulatory body to monitor implementationof projects. This would result in transparency in system, better quality standards andensuring structure safety of the building.

National housing & Habitat urban policy:

A new centrally sponsored scheme to provide an interest subsidy of 5% per annum for aperiod of 5 years to commercial lenders for lending to economically weaker section andlow income group segment of the urban areas.

Not only this ministry of rural development,GOI,is examining the amendment to landAcquisition Act the amendment includes a provision that makes it mandatory for thebeneficiaries to develop wasteland in exchange for allocation of farm land .The objectiveof this review is to ensure that the total agricultural land in the country does not shrink.

Integrated township policies:

State government of Rajasthan, Gujarat & Maharashtra have released integrated townshippolicy.

Credit to the Real estate sector :measure to cool off the market:

As indicated in a graph ahead, the commercial real estate sector has witness an extraordinary rate of credit expansion during the last year. Further the credit growth for sectorssuch as construction, retail and housing sector has been phenomenal, which in turn hasfuelled the over all demand.

83.9

49.5

34.3

34.2

32.3

30.8

26.9

23.6

23.215.3

0 10 20 30 40 50 60 70 80 90

Construction/real estate

Construction

retail

Textiles

Housing

Agriculture

Chemicals

Food processing

infrastructureEngineering

In % year on year, Credit Growth Rate by Sector,

Source :RBI


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It also raised risk weight on exposures to CRE from 125% to 150%.All these measureshave been introduced to rein in the unbridled growth of the industry and to curtailliquidity in the real estate sector.

Union Budget 2007:impact on real estate:

Direct Tax:

There is no extension of tax holiday under section 80IB (10) for small sized housing,which impact developer and state housing boards. The tax holiday would not be availablefor projects whose first sanction/approval from local authorities is obtained after March31, 2007.

Indirect Tax:

Service Tax has been levied on services relating to renting of immovable property.

Service tax has been levied on services relating to execution of a work contract.

C) BROADENING INDIAN REAL ESTATE CAPITAL MARKET:

Funds raised in million

0

500

1000

1500

2000

2500

So

bha

Deve

lopers

Parsvnath

Deve

lopers

Lan

co

Infra

tec

h

Un

ityIn

frapro

jec

ts

Purvanka

raPro

jec

ts

Om

axe

Limite

d

Hous

ing

deve

lopmen

t&

Infrastru

cture

Ltd

DLFLimite

d

Ak

rutiNirman


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Private Equity:

Private equity emerged as one of the most preferred options for the foreign investorsto enter the Indian real estate market. Real Estate private equity funds played anaggressive role in the 2006-07 and likely to be continue to dominate the real estate

transaction activity in 2007-08.

Some of the prominent large private equity deals in the Indian real estate sectorduring the last year were:

1) Avenue Capitals2) DE Shaws USD3) IL & FSUSD4) Morgan Stanley Real Estate USD5) TPG-Axon Capitals6) Blackstone Group

The activity is not only limited only to International private equity player andfinancial institutes. Several Indian financials institutions have raised real estatefocused funds and are aggressively looking for investments across asset classes andgeographies within India.

D) URBAN GOVERNMENT REFORMS..DRIVING UP THE REALITY

MARKET:

Governments are expected to drive up the socio economic growth of these citieswhich in turn will impact the local real estate market dynamics.

Most of these master plans are intended to increase land supply.

Resent Development

- The notification of 2021 Master plan envisages private sector participation in landacquisition and housing in Delhi ending DDA monopoly.

-As per the new Bangalore master plan, 2015, FAR has been increased in the rangeof 2.75-3.5.

-The Government of Maharashtra plan to repeal the Urban Land Ceiling andRegulation Act.

Jawahar Lal Nehru national Urban Renewal Mission

63mission cities with focus on efficiency in planned urban development. During theyear 2006 the sector witnessed increasing interest from several internationaldevelopers originating primarily from Middle East. In addition to developers, several


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contracting and infrastructure development firms also entered India to grab a pie ofsignificant development pipeline in the country.

E) STRATEGIC ALLIANCE:

This is the new mantra for real estate that is trend towards strategic alliances andcollaboration. Most of the alliances are for the objective of fulfilling the fundingrequirement, mitigating risk in projects with high gestation periods, obtainingtechnical expertise, enhancing execution capabilities, brand equality etc.

Several International developers prefer to follow the strategic alliance model whilebidding for large scale development projects on PPP model in India. The two mostprominent alliance were: Emaar-MGF 50:50 JV faith leading Australian contractorLeighton Holdings Ltd. and DLF Joint venture with Laing ORourke of UK. Omaxehas tie up with Vishal Retail Ltd. to develop retail properties across 50 metro stationin Delhi.

Investor Perception towards Real Estate

Real estate is a capital intensive sector. Being so, availability of capital is one of theimportant catalysts for the growth of the real estate sector. Hence, while evaluating theopportunities and formats, it is essential to seek investor prospective on the same. Nowwe will find out the following key point:

1) Prospective on Indian Real estate2) Preferred model of investment in India real estate.

3) Emerging investment destination.4) Asset class wise investment preferences5) key risks and concerns in the Indian Real estate market

A survey which was conducted by Earns & Young to find out the answer of above

mention questions. Following points were emerging through this survey:-


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1) Prospective on Indian Real estate Market:1.1.On real estate market vis--vis other development counties

5%

0%

16%

42%

37%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

cant say

Average

Good

Very Good

Excellent

79% of the survey respondents rate India as either as very good or as an excellentinvestment destination.

1.2 On Growth trajectory of the Indian Real Estate sector;

11%

21%

26%

16%

0% 5% 10% 15% 20% 25% 30%

More than 5 year

3-5 year

2-3 year

one year

63% of the respondents feel that the current growth momentum witnessed in Indian realtywould continue for next 5 years with a sustained growth of 25%.


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1.3 On the expected Yields in the real estate sector

22%

22%

50%

6%

0% 10% 20% 30% 40% 50% 60%

Long term

Short term

Mid term

Cant say

50% of the respondents feel that the expected yields in the real estate sector are mid term.

2. Preferred model of investment in Indian real estate.

2.1On the preferred mode of investment:

69%

5%

26%

SPV Level(with single

asset holding project)

Enterprise Level

SPV level (with multiple

asset holding)

95% of investors surveyed prefer to take the SPV route for investment.


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2.2 On the Preferred Investment instrument:

9%

45%27%

14%

5%

others

Equity

Fully convertible

debentures

Differential Equity

Fully convertible prefernce

share

Equity emerges as a most preferred investment instrument amongst the investors.

3) Prospective on the preferred Investment Destination

3.1 On their current portfolio of investors

37% 37%

26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Tier I Cities only Tier I & II Cities only Tier I ,II& III Cities

The current portfolio of the investors is dominated by investment in Tier I cities.


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3.2 On their indices impacting city evaluation:

32%

49%

9%

5%5%

Real estate

dynamics(demand supply

scenario,price

movement,future outlooketc)

Economic and Industrial

Profile of the city

Social and Urban

infrastructure in the city

Governmentinitiatives(inverstor

Friendiness educational

Around 45% of the respondents ranked economic & industrial profile as the mostimportant parameter while evaluating city for investment.

3.3) On the presence of IT/ITeS Industries impacting investment decisions:

26%

32%

42% Indifferent

no

yes

42% of the respondents expressed that the presence of IT/ITeS industry has an impact onthe investment decision. Though IT/ITeS has remained a driver for Indian realty, a

sizeable of investors is willing to look beyond the IT/ITeS industry.


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4. Prospective on Asset class:

4.1 On the current investment exposure to various Asset class:

18%

12%

6%58%

6%

Induatrial / IT Parks

Commercial office space

Commercial retail

residential

Hotel/Resorts

Residential segment emerge as a clear winner with 58% of the total investment portfoliointo this residential segment. Primarily due to high returns and ease of exit, Residentialhas remained the favorites asset class of the investors in Indian real estate.

4.2 On asset classes set to witness stagnation in returns:

21%

5%

42%

11%

5% 5%

0%

5%

10%

15%

20%

25%

30%35%

40%

45%

Com

mercialo

ffice

space

SEZ

and

industrialp

arks

Com

me

rcialretail

residential

Hotel/R

esorts

Others

Commercial retail will witness maximum stagnation in returns over the next 2-3 years,followed by commercial office space with 21%.


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4.3 Views of investors on the asset classes attracting investment in future:

7%

13%

60%

20%

0%0%

Large format integrated

townships(>2000 acres)

Healthcare

(hospitals)infrastructure

Logistic & Warehousing

infrastructure

Mass housing .slum

rehabitation

education

(Schools/institution

/universities) infrastructure

others

Logistic and warehousing seems to be the next buzzword in the real estate sector.

4.4 Views of investors on the Preferred Asset class in Tier II & Tier III cities

83%

0%

11%

6% 0%

Residential

Commercial office space

Retail & Entertainment

Others

Hospitality & IndustrialParks

83% of the respondents ranked residential development as their most preferred asset classin Tier II & Tier III cities.


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5) Key Risks and Concerns in the Indian Real Estate Market

5.1 On the impact of currency fluctuations:

5%

42%

21%

26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Negative impact Negligible impact positive impact cant say

42% of the respondents ranked that currency fluctuation have negligible impact on theinvestments.

5.2 On biggest deterrent to deploying funds in the Indian real estate market:

50%

19%

31%Significantly High

High risk associated with

land ownership

Lack of quality deals that

fiits investment profile

Almost 50% of the respondents believed that significantly high (land) valuationexpectation of the Indian developers is the most significant deterrent to fund deployment.

Around 30% believed that lacks of quality deals that fit investment profile is the mostsignificant deterrent to the investment.


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Land price has gone through the roof and investors are deeply concerned about deployingfunds at such valuations.

5.3 On the risks in the real estate business in India:

41%

41%

12%

6%

Demand & supply

dynamics

Land title & ownership

issue

Pace of Ecomomic

Reforms

Political Environment

Land title & ownership issue, demand & supply dynamics are the main risks faced by thereal estate business in India.

CHANGING LANDSCAPE

As the Indian real estate sector continue to trend the high growth trajectory ,the rules ofthe game have been changing faster than ever before ,with the entry of global player,inflow of foreign capital geographic diversification and introduction of reforms thesector is poised to witness significant structure changes in the coming years .Newavenues of the business are likely to throw up new opportunity and challenges .The realestate players having long term interest in the sector may have to keep pace with thedevelopment by redefining markets. Adopting differentiating product formats andensuring quality deliverables to meet the expectation of a discerning customer.

Strategies adopted by the Government, developers and investors to counter thesehurdles is expected to play a defining role in shaping the future of the sector and impactits sustainability.

Currently Indian real estate is in focus but we are not sure it will sustain how long .thisis due to expose Indian real estate to global liquidity and interest rate related risks,besides threat from other emerging markets.

The apex bank has been concerned about the growing exposure of SCBs (Scheduledcommercial banks to real estate constituting close to 91% of total lending to sensitivesector. In 2006-07 the RBI constrict funds flowing into real estate sector are:


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1) A clamp down on foreign debt into real estate.2) Increase in risk weight for loans to commercial real estate to 150 %.

With real estate prices continuing to appreciate, we foresee the policy baton tightening

in the near future as well. Wit restriction on bank lending, real estate developers mayhave little option and hence might resort to more expensive financing option.

The Debt burden:

Indian real estate companies tend to have a high debt component in their capitalstructure, thus restricting these companies ability to raise debt and securitize their asset.

Pressure on margin: Growing hurdles for developers:

Another significant challenge that Indian developers have been witnessing in the last

Few years is the increasing pressure on their profit margins due to rise in input andOverhead cost.

-It is estimated that cost of cement has increased by 30 % and that of steel by 10% asCompare to last year.

-Developers tend to face stiff challenge on rising overhead costs related to humanresourcing and marketing.

-There is also stiff increase in marketing and advertisement expenditure.

Execution challenge-capability constraints:

With limited presence of large organized construction companies possessing adequateTechnical, project management & special construction capabilities.

UPCOMING OPPORTUNITIES

Mega Integrated Townships

The growing rate of urbanization in India and subsequent pressure on infrastructure

is expected to drive the advent of mega integrated township projects across India.

High economic growth has resulted in higher rate of employment, increase per capitaincome, and accelerated pace of development hurdles of the cities.

The traffic congestion, increasing travel times constrained power and water supplyand unavailability of land fills for municipal solid waste disposal are some of the


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problems. Most of the townships being developed in the country till date are in therange of 100-500 acres.

So, we can say that the sheer size and population of the country buoyed by a growingeconomy is envisaged to present an unprecedented range of opportunities.

Urbanization, demographics, social and physical infrastructure are the key enablers.

The biggest push to the real estate sector in India is expected to come from hugeinvestment expected in infrastructure over the next four to five years. For this PPPapproach is best suited. As it supplements scarce public resources, create a morecompetitive environment and help to improve efficiencies and reduce costs.


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2.3) Ups and down from the real estate from the eyes ofErnst &Young Quarterly reports

Quarter ended June 2007

Opportunities and challenges for the Indian Hospitality sector and its impact on realestate sector

The industry continue to witness a high level of activity in all areas-investment ,alliances& new projects,retail,hospitality segments are witnessing increased development action.Israeli company has started showing keen interest in the Indian real estate industry.

The RBI issued a notification banning real estate companies from raising funds throughECB route even for developing integrated townships. RBI reduced risk weight on

housing loans up to 20 Lacs to individuals. The NHB has launched RESIDEX ,an indexto track the price movement in real estate ,especially housing prices for five cities:-Delhi,Mumbai, Kolkata, Bangalore & Bhopal on pilot basis.

The quarter witnessed DLFs IPO, the largest ever by an Indian company. Real estateindex closed the quarter with more than 30% increases from the opening value. Incontrast, the BSE sensex registered only 19.7% increase during the same period.

Challenges:

1) Land prices in India have escalated so rapidly today, that it is unviable to put up hotelwhich is not a 4 star or above, in any of the top ten major cities in India.

2) A major bottleneck relates to government approvals and red tape. Since land is a statesubject, each status has its own endless, and often, incomprehensible rules relating to thebuilding and operationalizing of hotels.

3) The time taken to get approvals is generally more than the time taken to build a hotel.

4) Availability and cost of debt is also a grate challenge. Since hotels are treated as realestate by banks, access to debt is difficult and the cost of leverage is high.

5) last is the absence of the basic infrastructure such as power ,fuel & water. All hotels inIndia have to provided their own infrastructure/backup.


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Regulatory update:

Government approves plan to build 550,000 homes

The Government announced plans to build around 550,000 low cost houses forthe economically weaker sections in the next two years and aims to add nearly 1million additional houses every year through PPP model to meet the housingshortage.

RBI notifies ECB guidelines for real estate

The RBI issued a notification banning real estate companies from raising fundsthrough the ECB route for developing integrated townships.

RBI weight on homes loans trimmed to 50%The RBI reduced the risk weight on housing loans up to Rs. 20 lacs toindividuals from the existing 75% to 50% to make them more attractive toborrowers. It is also an encouragement to the housing sector as banks now havean incentive to offer small value housing loans to their customers.


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Quarter ended September 2007

This report rolls out Indias most scientific and comprehensive framework toidentify the promising urban agglomerations in the country for the real estate

investments.

The National housing bank launched NHB RESIDEX, an index to track the pricemovement in real estate, specially housing prices for five cities.

Ernst & Young Real estate index which closed the quarter with more than 175%increase from the opening value. In contrast, the BSE Sensex registered only a20.8% increase during the same period.

MOVING UP THE VALUE CHAIN:

1) First prominent trend observed is the forward and backward integration byseveral firms in the real estate value chain. Infrastructure & Construction giantsplaying a big role in the indian realty Sector.

2) Major corporate houses have commenced their foray into retailing & finance.

3) The project portfolios of major national construction giants such as Unitech,DLF, Sobha, Parsvnath & Ansal have scale up drastically.

4) The real estate sector also witnessed diversification of project portfolios bysome of the major developers.

BROADENING OF CAPITAL MARKETS:

The IPO market has witnessed the shifting of focus to the realty sector in the year2006-07.over 18 real estate and construction companies got listed in August 2006to August 2007 and raised over USD 4,356.30

The listing of DLF, the largest Indian real estate developing country, launchedIndian largest ever IPO of over 2 billion, had impact on the market.

Not only this there were also listing of several other real estate companies on theoffshore exchanges like AIM, Singapore listed REIT, Singapore Stock exchangeetc.


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PATH OF THE FUTURE

Real estate sector has grown very rapidly and that the window of opportunity islimited in terms of time and finances. However, the six most developed markets

in India have already started becoming highly competitive.

IT /ITeS sectors shifted towards cities like Jaipur, Pune, Kochi etc .A shifttowards these cities with the medium term potential is perhaps primarily due tothe spill over of demand for commercial office space and to leverage inherent costand labor advantage.

Thus it make business sense to explore relatively new markets. The economic,social and urban growth are critical growth factors for the city growth and anassessment of this potential in different cities across India, could assistGovernment ,Industry, developers & Investors to systematically plan the inflow of

investment and the development of the cities.

INDEX COMPOSITION

To evaluate each city, five critical indices were created based on essentialparameters on which any city is reliant to develop and grow.

City Prosperity, Urban Governance, Business Environment, Infrastructure andquality of life. These were primarily based on general affluence of the residents,government policies and regulations .Which influence the investment climate,confidence of the private sector in investing in the city ,level of existing social

and physical infrastructure and the general quality of life in the city.

REGULATORY UPDATE

1) Karnataka revises land acquisition policy:

The Government of Karnataka revised the land acquisition policy by making itmandatory for projects being set up on agriculture lands to offer 20% of thedeveloped property to farmers from whom the land has been acquired.

2) Real Estate company plan to enter into telecom sector:

Real estate Company like DLF, Unitech, Parsvnath and India bulls, announcedplans to enter the Telecom market

Source: The Economic Times, 25 September 2007


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3) 12 Realtors join for Satyagriha alliance

Satyagriha to build 342,000 homes through about 100 projects across 15 cities inIndia over the next six years.

4) DLF to develop middle income housing

DLF announced plans to develop middle income housing initially in cities likeBangalore, Chandigarh, Chennai, Indore and Kolkata. The projects wouldtypically be 3 bed room apartments and would cost between INR 4.5-5 million.

5) State may acquire 30% land if private developer has 70%

The group of Minister on the relief and re habitation policy, Government of India,is likely to allow the state government to acquire 30% of the land for SEZs if the

private developer has acquired the remaining 70%.Earlier,the Ministry of Ruraldevelopment was for the ratio of 90:10


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Quarter ended December 2007

Indian Real Estate private Equity: A year in preview

RBI announcing the guidelines for real estate investment trusts and repealing of theULCRA in Maharashtra.

The E & Y Real estate Index closed the quarter with over 42% increase from the openingvalue. In contrast, the BSE Sensex registered only an 18.3% increase during the sameperiod.

In overall scenario the Industry growth potential is positive in Year 2008.

INDIAN REAL ESTATE PRIVATE EQUITY

With the DLF listing energizing the market, several developers proceeded to go public inIndia. Creating a robust market place in retail investors to participate in the growth story.This is expected to be broadened in 2008 with the advent of the REIT structure.

In the year 2007 several challenges also emerged like: rapidly rising prices of thecommodities, current fluctuations, Interest rate rising by 25 basis point and the globalspecter of the credit crises all managed to put fund manager on defensive footing.

In 2008 three kit trends might be emerging which will help in shape the strategy for manyfund managers.

1) There is an increasing amount of attention to execution risk and physical underwriting.Taking greater care to analyze the execution risks of a proposed project with careful inputfrom in-house civil engineers, architects and research professionals. This is increasinglyimportant as projects are becoming delayed due to a dearth of qualified projectmanagement companies.

2) Funds are looking to blend the risk profile of their investments by coupling executionand timing risk with price and valuation risk. We may look at investing in suburbantownship, in which case the basis on the land is low and therefore our pricing risk ismitigated ,however such a project is typically larger in terms of square footage and

requirement of new infrastructure and would require phasing and more diligent projectmanagement.

3) Funds are increasing looking to invest in mixed use development projects. We havefound that there are synergistic benefits to having different asset types co-located. Forexample, proximity of retail and office can drive revenues in a hotel while also boostingresidential pricing.


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Quarter ended March 2008

1) Source: E & Y Quarterly Report

This quarter saw the countrys biggest land deal, where a 95 acres commercial plot inNoida was sold at over INR 50 billion.

The US sub prime crisis appears to have affected the realty stock in India. The Ernst &Young real estate index decline by 44% during this quarter in comparison to the declineof 24.3% in the overall market represented by the SENSEX.

2) Source: Indian Residential Property Market Mid income Segment

The housing sector is mirroring the rapid economic growth that the country isexperiencing. In 2006-07, while GDP recorded a 9.4% growth ,real estate grew by

11%.Residential segment is lending the growth trajectory of the fast expending real estatedemand originates from this sector.

Owning to sharp run in real estate prices over last couple of years, majority of thedevelopers graduated to high end housing tom fetch higher margins for them selves .Inthe process the mid income homes segment got ignored ,leaving a large latent demandwaiting to be tapped.

The demand growth in mid income housing has also been fueled by easy availability ofhome loans with tenors up to 20 years. This made housing affordable to the large sectionof middle class, specially young working population ,who could now dream of owning a

house at the starting of their career. In the last financial year, home loans by the bankingsector grew by almost 80%.The young working population is also less price sensitiveand less averse to taking risks.

A Mckinsey report mentions that Indian will be worlds fifth biggest consumer market by2025 and in next three years ,200 ,000 homes will be built in several biggest cities for themiddle and high income groups costing between INR 2.5 -5 million.

DLF strategy on mid income homes is to provide affordable housing to families with posttax income of INR 1-1.2 million per annum. Based upon an affordability factor of 3.5 -4,the mid income homes from DLF comes at a price point of INR 4-5,with sizes varying

from between 1250 sq ft.

A UN study opines that Indias rate for urbanization is faster than the rest of the worldand as per the state of the world population report 2007, Indian population in urban areas,which currently is less than 30%, is expected to rise to 40.7% by 2030.This growingurbanization will result in an incremental demand for housing in suburban locations ofurban areas.


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3) In focus: Mid income housing

The growth of the urban middle class is the principal demand driver for mid

income housing

The demand for residential real estate has been fuelled, in general ,by increasingurbanization, rising income levels, decreasing household sizes ,easy availability of homeloans, and tax incentives for borrowers.

There is huge shortage in Affordable Housing. Nearly the entire shortage falls in theaffordable housing segment. The provision of such housing has historically been theresponsibility of the Government and affiliates. Affordable housing does not provide highmargins.

3.1) Increasing urbanization:

Increasing urbanization and rising income levels have led to the growth of the middleclass segment in India. The degree of urbanization in India has increased steadily to27.8% in 2001 and is expected to be reaching 33.4% by 2026.

3.2) Rising income leading to growth of the middle class:

Due to robust growth in the service sector and the economy as a whole has resulted inrising house hold income level in the country. The number of middle class households(INR 2,00,000 to INR 1,000,000) and rich households (INR


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3.5) Large developers are foraying into the affordable housing segment:

Until now developers have been focusing on high end residential segment as they areprovided higher margins. The companies plan to retain such high margins even in the midincome residential projects by selling large volumes of smaller sized homes without any

frills such as swimming pools and jogging tracks.

As cost conscious IT/ITES companies have diversified into small cities in search ofquality manpower. The number of young and financially independent people in thesecities has also increased. Fuelling the demand of affordable residential real estate.

Thus as the real estate industry grows with each passing day, the gap between people whocan afford housing and who can not afford is also widening. The gap can not be reduceunless there is increased in participation from private developers.

REGULATORY UPDATE

FSI raised in Mumbai: The Government of Maharashtra announced its decision toincrease the floor space index in the suburbs from 1 to 1.33

Central Government plans new rent rules:The central Government announced itsplan to amend the rent Control Act. To authorize land owners to increase rent at Certainintervals.

Karnataka Government to introduce E stamps: The Government of Karnatakahas decided to introduce e stamping of property document. This is to eliminate

corruption and faking of documents.


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2.4) Overview of Economic Environment of Indian real estate from eyes

of various news papers

FACTS ABOUT INDIAN REAL ESTATE

Reality or Illusion?

E.T. 2ndFebruary 2007

The current upsurge in the market is being driven by irreversible and sustained

fundamental factors

Growing at rate of 30% per annum, the Indian real estate sector is metamorphosing into avery lucrative investment market offering attractive returns. At present, the sector isestimated to be around $ 15 billion and is projected to reach $ 102 billion over the next10 years. By 2010 there is going to be 200 million sq ft for organized retail and

furthermore, we are going to see about 5 times increase in office space and over 50,000new hotel rooms being added over the next 5 years.

India is expected to experience a demand-supply gap of around 18 million housing unitsby 2010. Commercial real estate demand is expected to be around 350 million sq ft. Outof which IT/ITES and organized retailing sector would demand around 300 million sq ft.Estimates also show that 42 million sq ft of space will be required every year until 2008.

Sector has witnessed a phenomenal growth in activities across key segments includingcommercial, residential, retail and hospitality.

All indicators tell us that the current upsurge in the market is being driven by irreversibleand sustained fundamental factors. As long as the Indian economy continues to grow byleaps and bounds, as all indicators show that it will, the built-up demand for real estate isthere to stay. Natural increase in urbanization of a I billion plus population has furtherfueled the demand in the residential real estate segment.

Today, the young working population is a strong believer of buy and repay as opposedto save and repay in the past. Consumption pattern of a young populace, is the basis ofan enormous demand for retail space. Finally, availability of a wide range of financingoptions is also driving the Indian real estate boom.

Massive sums of strategic long-term investments are required to keep this industry on itscurrent growth path. With the launch of REMFs and REITs, domestic mutual fundplayers and small investors, the largest source of investments that possibly exists, willalso soon be allowed to get a taste of the real estate pie. In addition, the introduction ofREIT and REMFs are expected to bring about positive structural changes by making theIndian real estate sector more professional and transparent, REITs will also facilitatesmooth and easy exit routes for real estate private equity funds, encouraging even moreprivate equity play in this space.


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Most real estate VC/PE funds in India are targeting an IRR between15% to 35%.Average time horizon that a PE expects to remain invested is about 5 years. In fact, thereal estate market is showing tangible signs of becoming more mature and resilient.

PROPERTY BUYS FIND FAVOR AS TAXES & FUZZY NORMS

HIT INVESTMENT PRODUCTS

Dreams: Indian investors shun exotic for realty abroad

E.T , 25th February 2007

The government allows remittance of $2,00,000 by resident Indians and real estate is thetop investment choice under this window so far.

The trend of Indians investing in real estate overseas is driven by the fact that demand forhousing is drying up in many countries. The sub prime crisis and falling property pricesoverseas have also played a role.

HOMING INSTINCT

Subprime crisis and falling property prices overseas have made realty anattractive investment option.

Demand for housing is drying up in many countries following the subprimecrisis.

But HNIs in the country are taken in by the India growth story.

REALTY CHECK

Mint, 12th July 2007

An economy thats expanding at 9% is creating more wealth and demand for commercialspace. While higher interest rates have crimped demand for residential homes asindividual buyers hold back, demand for office space is showing no signs of letting up.

India The land of opportunity:-


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ET, Friday 16th November 2007

That world be the best way to describe the Indian Real Estate scenario right now, withForeign investments pouring into India and getting great returns too.

With a growth rate of 30 percent and projected figures of 90 billion US dollars, by 2015,it can be safely said that the real estate sector in India is booming. High growth curve inthe real estate sector owes some credit to a booming economy and liberalised ForeignDirect Investments (FDI) regime in the real estate sector.

This pace of economic growth shows no signs of slowing. India is expected to becomethe worlds third largest economy by 2010. With the fundamentals of the Indian economyapparently sound, and prospects for continued growth very good, the real estate industrycan only flourish. This in turn translates into great opportunities for real estate companiesproviding quality township projects.

But the real story lies in the deeper changes within Indian society, that are expected tohave an even greater impact on real estate. India has a young profile today. Half of itspopulation is under 25 years and the countrys median age is 24 years (2005), comparedto 33 in China and 43 in Japan. The country is urbanizing at a rapid rate of 2.5 per centper year. The number of cities over one million is expected to double from 35 in 2001 to70 cities by 2025. Mumbai and Delhi is projected to be the worlds second and thirdlargest cities by 2015. Indias large population is now being viewed as one of its keystrengths, especially a young and urbanizing population. Massive labour marketopportunities.

While India is still considered under performed as compared to China, as far asinvestments are concerned. The Indian real-estate market is expected have access toabout $10 billion (Rs 41,000 crore) in private equity. The entry of Real Estate MutualFunds or Real Estate Investment Trusts will definitely ensure more availability of fundsto the developers and faster growth of real estate sector, according to industry experts.

Housing boom, but poor still homeless:-

Times Of India, 25 November 2007

National Building Organization estimated 24.7 million people in urban India withouthouses and 97% of them will be from the low-income groups.

9% houses owned by them in urban areas are lying unoccupied.

Over 37% of the 66.3 million urban households do not have shelter.


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The situation is only expected to worsen, with the number of those without homesexpected to go up to 26.5 million by the end of the 11th plan in March 2012.

The study says that the fiscal incentives given to the housing sector have been corneredby the high income group and have not been availed by weaker sections of society.

Property boom is over:-

Times Of India, 25 November 2007

Unless the sector is brought under regulation, it will mop up funds of a dubious kind.

The cycles in the property sector are a result of its peculiarly unregulated nature. As aresult, a hype around property becomes easier to create.

The easing of interest rates on both loan and deposit sides was a correction that wascoming.

Housing finance companies and banks gave undue importance to property.

The hype around land banks also fuelled the rush into property.

With huge amounts having gone into buying land, they are short on funds needed tocreate projects for which bookings and promises have been made.

Foreign direct investment will not come unless land management laws are regulated atthe central level. Black money is needed to purchase land.

The sector suffers from a resource crunch and oversupply. With speculators moving outand end-users stepping in, prices should drop, except perhaps in the high-end market inthe metros.

The US sub-prime crash was caused by too much money going into mortgages whichturned into defaults.

Real estate companies are looking for equity partners, CRR is moving up, interest ratesare down, and professional players are moving into real estate sector. The rosy years andmonths are over.


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Global shocks can hit Indian Economy, Not Immune To US Crisis:-

Times of India, 20th December 2007

We need to redouble our efforts to maintain the domestic drivers of growth and ensurethat policy facilitates even faster growth.

Economy would be able to clock double digit growth rate in the 11 th plan period on theback of an average 9% growth rate in the last three years of the 10th plan.

Availability of food would be under stress.

We probably need to enhance buffer stocks of foodgrains and also consider bufferstocks for pulses and edible oil.

Plan has specific, focused programmes, both for skill development and education andalso for improving basic infrastructure.

Growth process that will achieve a rapid reduction in poverty, accelerate the pace of bothindustrialization and employment generation, reduce rural-urban divide.

Aims to achieve an ambitious double digit growth by the end of the plan period.Increasing total annual investment in infrastructure from 5% of GDP to 9% during thefive years and achieving 4% growth in the agriculture sector.

200 Companies turn to realty in two years

Mint, 25thDecember 2007

With real estate being hot property, many companies are altering the object clause oftheir Memoranda of Association (MoA) to cash in on this boom.

About 200 companies have amended their MoAs in the last couple of years, according toSanjay Dutt, deputy MD of Cushman & Wakefield, With valuations exceedingexpectations and lot of capital chasing many assets, the trend is likely to go up further.

According to Company Law provisions, the objects clause have to be altered to enablecommencement of any businesses envisaged. Every firm irrespective of its size and scalewants to be associated with the real estate segment.

Trend is largely noticeable in firms operating in the FMCG, pharma and financialservices segment. This is because growth in sectors like consumer products iscomparatively much lower than the current growth rate in the real estate industry.


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CONSERVATIVE APPROACH

Hines India expects a correction in real estate markets:-

Mint, 27th December 2007

It plans to be conservative in making investments because it believes the Indian realestate market is overheated and ready for a correction.

Creating a new breed of rich among land owners,. The rapid escalation in land pricessuggests a bubble.

The real est

explorative study of real estate

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